Growth of organic category suggests still greater attention ahead

April 19, 2016
- by
Keith Nunes

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Sales of organic food and beverage products are on the rise and, in response, the market is gaining scale as additional acreage and resources are devoted to certified production. While the market, which did not receive an official definition under the auspices of the U.S. Department of Agriculture until 2002, is still in a nascent phase, emerging critical mass has the potential to accelerate growth rates and further broaden the category. The growth will also further intensify the debate regarding the exact benefits of organic products in comparison to their conventionally produced counterparts.

In absolute terms, the expansion of the market for organic products in the United States has been slow. The total retail market is now valued at more than $39 billion in the United States, and the number of domestic certified organic operations increased by almost 12 per cent between 2014 and 2015, representing the highest growth rate since 2008 and an increase of nearly 300 per cent since the count began in 2002.

The figures will continue to rise as larger food and beverage companies and ingredient suppliers commit resources to growing the portfolio of organic food and beverage products they manufacture. In December, for example, ingredient supplier Ardent Mills introduced an organic wheat initiative focused on doubling the number of organic wheat acres in the United States by 2019.

This past March, General Mills, Inc. announced plans to double the amount of acreage it is devoting to organic production to 250,000 acres by 2019. The effort is in line with the company’s goal of achieving $1 billion in the sale of natural and organic products by that same year. The company says it is the second largest buyer of organic fruits and vegetables in the United States and within the top five purchasers of organic ingredients in the North American packaged food segment.

Despite the news, the production of organic field crops remains small when compared to the production of conventionally grown crops. Total certified organic crop acreage nearly doubled from 638,500 acres in 1995 to 1,218,905 acres in 2000, more than doubled to 2,643,221 acres by 2008 and increased another 17 per cent to 3,084,989 acres by 2011, which is the most recent year the U.S.D.A. has numbers for total organic crop area based on data from organic certifiers. To put the numbers in perspective, organic acres comprised only 0.83 per cent of total crop area of 370.7 million acres in 2011.

It does not take much effort to see how organic production may grow more rapidly in the years ahead. The U.S.D.A. is putting programs in place to support the market and ease the financial burden many producers face in making the transition to organic certification, which may take up to three years.

There is also a defined market with what appears to be a large and growing base of consumers demanding such products. Food and beverage companies have proven they are willing to pay high multiples to acquire the likes of such leading organic businesses as Annie’s, Applegate Farms and others in order to gain greater access to this consumer, who is willing to pay a premium for such products.

Yet with all of the investment and attention being paid to the category, what, exactly, consumers are getting in return for the purchase of organic products remains unclear. The questions will only intensify as more companies introduce organic versions of conventionally manufactured, processed products that feature certified ingredients but the same nutrition profiles.

In February, the Centers for Disease Control and Prevention published data showing the rate of obesity among adults over the age of 20 in the United States continues to rise. The agency estimates the costs associated with obesity and the chronic conditions it causes to be greater than $147 billion per year. It remains to be seen what, if any, impact more consumers eating products certified as organic will have on these numbers.

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